REPORTABLE
IN THE HIGH COURT OF SOUTH AFRICA
(CAPE OF GOODHOPE PROVINCIAL DIVISION)
CASE NO:   4368/2002
In the matter between
CHRISTOPHER PETER VAN ZYL N.O.                                First Plaintiff
EILEEN FEY N.O.						       Second Plaintiff

and

KANTEY & TEMPLER (PTY) LTD				        First Defendant
PETER WORTHINGTON-SMITH                                 Second Defendant

Coram:		YEKISO J

Heard:		17, 18, 19, 23 & 24 August 2004
Delivered:		27 May 2005

Summary: Liability based on pure economic loss - defendant’s found jointly and severally liable – contributory negligence – factors taken into account.

JUDGMENT DELIVERED:   27 MAY 2005

Yekiso J
[1]	First and Second Plaintiff are joint liquidators of Gransteel Construction (Pty) Ltd (in liquidation) to which I shall henceforth refer to as “Gransteel”.   Gransteel was provisionally wound up by order of this court on 7 March 2001.   The provisional winding up order was confirmed on 18 April 2001.  

[2]	In their aforesaid capacities, plaintiffs have instituted these proceedings against first and second defendant, jointly and severally, the one paying the other to the absolved, for payment of an amount of   R 2,333,127.67 which is alleged to be due and payable by the defendants, being in respect of damages allegedly suffered by Gransteel arising from certain representations allegedly made by first and second defendant to Gransteel prior to its liquidation and as a result of which such representations Gransteel, so plaintiffs allege in their particulars of claim, acted to its detriment.
 
[3]	The alleged representations are alleged to have induced Gransteel, through the person of its managing director, one Gideon Ellis, to conclude a structural steelwork contract between it (Gransteel) and first and second defendant during November 1998.   In terms of the aforesaid agreement, Gransteel undertook to supply material and to do certain structural steelworks in a fruit terminal project to have been erected on a property owned by Spoornet and situate in the Port Elizabeth harbour.   As a result of material supplied and structural steelworks so undertaken, Gransteel is alleged to have incurred financial loss in an amount of R 2,333,127.67 being the value of the claim referred to in paragraph [2] instituted against first and second defendant in the aforementioned amount.    First and second defendant, not only dispute being liable to Gransteel in the aforementioned amount or any amount at all, but also disputes the basis for liability of the amount so claimed.
	
[4]	The first defendant, against whom the claim is jointly being enforced, is a limited liability company duly incorporated in accordance with the laws of the Republic of South Africa, carrying on business as consulting engineers and having its principal place of business at Broadway Centre, Hertzog Boulevard, Cape Town.   The second defendant, on the other hand, is an adult male applied refrigeration consultant of Battaleur Way, Erinvale, Somerset West.

[5]	The plaintiffs allege in their particulars of claim that subsequent to an invitation to Gransteel by the second defendant to submit a quotation to supply the required material and to do certain structural steelworks in the proposed fruit terminal project, an agreement was concluded between Gransteel and the second defendant, who claimed to have been acting on behalf of a consortium, to supply the necessary material and to do the required structural steelworks at an agreed contract price  in an amount of R 4,443,130.89 excluding value added tax (vat), alternatively in an amount to be calculated in accordance with the rates provided by Gransteel.   The plaintiffs further allege in their particulars that at the time the structural steelwork contract was concluded, first and second defendant represented to Gransteel that they were acting on behalf of a developer.   At all material times subsequent to the conclusion of the structural steelwork contract Gransteel was represented by its managing director in the person of the said Gideon Ellis, whilst the first defendant was represented by one Robert Peter Twemlow (“Twemlow”) and/or by the second defendant or by Both Twemlow and the second defendant.   It is further alleged in the plaintiffs’ particulars of claim that, at all material times during the negotiations leading to the conclusion of the said structural steelworks contract, the second defendant acted within the course and scope of his employment with the first defendant.

[6]	Before leading viva voce evidence, there was handed in certain documents as exhibits, these being a bundle of documents consisting of somewhat 511 pages.   This bundle of documents was handed in as exhibit “A”.   Although not explicitly stated by the parties, these documents were handed in for what they purport to be and were to be admitted as such without proof.   There were further documents handed in as exhibit “B” being two photographs depicting the steelwork structure erected by Gransteel on the Spoornet property.

BASIS OF PLAINTIFFS’ CLAIM 
[7]	As has already been pointed out, plaintiffs’ claim arises out of a structural steelwork contract allegedly concluded during November 1998.   The plaintiffs allege in their particulars that at the time the structural steelwork contract was concluded, the second defendant represented to Gransteel that he acted on behalf of a consortium charged with the development of a fruit terminal project in the Port Elizabeth harbour; that a joint venture had been etsbalished which would be used as a vehicle to drive the proposed project and that financial arrangements were in place to enable the proposed fruit terminal project to proceed.   The plaintiffs further allege in their particulars of claim that the representations referred to were false in that the developer did not exist; that no joint venture had been established and that no financial arrangements were in place to enable the proposed fruit terminal to proceed.

[8]	The crux of plaintiffs’ claim is that the representations referred to in the preceding paragraph were made in circumstances where there was 
a legal duty on the defendants to disclose to Gransteel a true state of affairs, namely, that the developer was not in place; that no joint venture had been established and the necessary financial arrangements were not in place to enable the proposed fruit terminal project to proceed.   

[9]	The plaintiffs further allege in their particulars that as a result of the aforementioned representations and as a further result of breach of a legal duty by the defendants to disclose the true state of affairs, Gransteel did supply the required material and subsequently did undertake certain structural steelwork and, in doing so, sustained financial loss which plaintiffs, in their aforementioned capacities, hold defendants liable to compensate Gransteel.   It thus appears that plaintiffs’ claim is based on pure economic loss arising out of alleged breach of a legal duty owed to Gransteel by the defendants.

OTHER SIGNIFCANT ACTORS IN THE PROPOSED DEVELOPMENT
[10]	Some of the significant actors in the proposed development is a company called DTL Shipping and Customs Services (Pty) Ltd (“DTL Shipping”) which at all material times was represented by one Michael Pickstone-Taylor (“Pickstone-Taylor”) and LTA Building (Eastern Cape), a division of LTA Construction Limited which at all material times, was represnted by one Eric Oswald.   It emerged in the course of evidence that for the fruit terminal project to come to fruition, it was envisaged that a joint venture would be formed encompassing DTL Shipping, LTA, Spoornet Ltd, a Black Economic Empowerment component and some overseas investors.   It further emerged in the course of evidence that at the time the structural steelwork contract was concluded, the proposed joint venture was in the process of formation.   It was envisaged that the financial capacity to undertake the proposed project would be derived from the proposed joint venture or, alternatively, the proposed joint venture would be used as a vehicle to access capital.
 
EVIDENCE 
[11]		Three witnesses were called to testify for the plaintiffs and these were Peter John McCoy, Gideon Ellis and Bernard Gutman.   At the close of plaintiffs’ case the defendants unsuccessfully applied for absolution from the instance.   Once absolution from the instance was refused, the defendants elected to close their case without tendering any form of evidence.

THE EVIDENCE OF PETER JOHN McCOY
[12]	Peter John McCoy is a structural engineer by profession.   After a short spell of employment in the steel industry as a structural engineer he formed his own company, Gransteel Construction (Pty) Ltd which was incorporated in 1972.   He started doing structural steelwork in 1975.   Prior to the liquidation of Gransteel he had been in the structural steel industry for a period of somewhat thirty (30) years during which period he had undertaken various structural steel projects.   Gideon Ellis had been in his employ since roundabout 1977.   Ellis  was promoted to the position of managing director in 1995.   Gransteel had grown considerably over the years and in later years had a workforce of in between 80 and 120 employees.   During this period he got to know the second defendant very well.   He had known him as a brilliant engineer and a cold storage specialist.   They had been involved in several big projects together, one of these having been the Kramco Apple Co-operative in Elgin.   He had a tremendous respect for him, so he testified in his evidence.   According to McCoy the sole fact that second defendant was the engineer in the project was a sufficient reason for Gransteel to have a sense of security in the proposed project.

[13]	McCoy had, during the months of October, November and December 1998, not had any direct dealings with either of the two defendants.   His managing director, Ellis dealt with the defendants during the period in question.   Ellis had, however, kept him informed of developments.    He is aware that Gransteel was requested to submit a quotation by the second defendant.   Only later in the course of the project did he become involved and only when it became apparent that Ellis was losing focus on other projects because of problems pertaining to the fruit terminal project.    It occurred to him that the project could not proceed due to lack of financial capacity.   After several attempts to resuscitate the projects, nothing eventually came to fruition.

[14]	Under cross-examination McCoy re-iterated that as far as he was concerned, the mere fact that the second defendant was the engineer in the project, was sufficient reason for Gransteel to proceed with the contract.   He had absolute faith in the second defendant.  The project was a prize plum because it was work from second defendant.   Everyone else who was involved in the project was known to him.   LTA was known to him and so was the first defendant.   This was one of the least projects he expected to go wrong financially.   He had heard of DTL Shipping.   Apart from that, he knew nothing of DTL Shipping.   As far as he was concerned DTL Shipping was a mere piece of paper.   There was an occasion, in the course of the project, when he did not know who Gransteel was working for.    At some point Gransteel would have been working for DTL Shipping the one minute and LTA the other minute.   He did not question the viability of the contract because, according to him, the second defendant had done all the background work.   He was also informed that Spoornet was also involved.   The project was on Spoornet’s property.   This, according to him, was an extra assurance about the viability of the project.   This about constitutes the gist of the evidence of Peter McCoy.   

GIDEON ELLIS
[15]	Ellis confirms having been employed by Gransteel since 1977.   He was appointed managing director roundabout 1995.   Thus at the time Gransteel had been involved in the Port Elizabeth fruit terminal project he had already been the Managing Director.   He heard of the fruit terminal project from the second defendant.   When approached by the second defendant, the latter had indicated to him that he (second defendant) wanted Gransteel to do structural steelwork in a cold store project to be erected on a property owned by Spoornet in the Port Elizabeth harbour.   He had understood the second defendant to have been acting for a consortium of which Spoornet was one of the partners.   The second defendant required that he submits a quotation urgently as the proposed project needed to be finalised during April and thus in time before the next citrus season.   The second defendant had given him a line diagram on basis of which he would prepare the required quotation.   This he prepared and had given it to him.   He had also spoken to a Dr Twemlow of the first defendant, with whom he subsequently had regular contact on the design and the pricing of the quotation.   He had not heard of DTL Shipping before but does recall having seen the name on the drawings relating to the project.   The second defendant had earlier indicated to him that because the project was of a significant size, he had asked Twemlow of the first defendant to assist him with the design side of the project.   

[16]	At some point in the course of the project he had been informed by Twemlow of the second defendant, that Gransteel would be a nominated subcontractor to the builder, LTA.   There was no direct communication between him and LTA to establish this relationship.   He is not certain when Gransteel was nominated a subcontractor to LTA.   LTA had earlier been appointed as the builder to the project.   He had furthermore been informed in the course of the project that the responsibility of the of the first defendant would be that of budget control and reporting to client.   He submitted the required quotation to the second defendant through the offices of the first defendant.   The quotation dealt with such aspects relating to the cost of material and manufacturing costs.   After submitting the quotation, same was approved and Gransteel was subsequently instructed to proceed with the contract.   He is not certain as to who instructed him to proceed but says it either could have been Twemlow of the first defendant or the second defendant in person.   He received the instruction to proceed on or about 20 November 1998.   Once an instruction to proceed was received he proceeded to procure the required material.   The second defendant had informed him of a consortium of which Spoornet was a partner.   He was not aware of the involvement of DTL Shipping in the project nor of the fact that DTL Shipping would stand good for costs incurred until a joint venture or a consortium would have been formed.   Had he been informed that the ultimate client was a joint venture in the course of formation, he would not have ordered the material and commenced with the steelwork.   He states emphatically that even if he would have ordered the material, he would not have started working on the material if an instruction to proceed had not been given.

[17]	He had been working on the material for about a week when he received a telephone call from the second defendant telling him to stop preparation work as there might be some problems.   The second defendant did not inform him of the exact nature of the problem.   After a period of about a week after the stoppage instruction, he received a further telephone call from the second defendant who had once again instructed him to proceed with the preparation work as the problem had since been resolved.   His communication pertaining to the project had largely been with the second defendant.

[18]	He was not aware at the time of the entity called Fruit Terminal (Port Elizabeth) (Pty) Ltd.   He had had no dealing with DTL Shipping nor had he heard of the name Michael Pickstone-Taylor.   At some point in the course of the project he was instructed by Twemlow to prepare a payment certificate and that this should be addressed to DTL Shipping.   Later, in the course of the project, Twemlow instructed him to substitute the earlier payment certificate addressed to DTL Shipping with one addressed to LTA.   He was informed in the course of the project that had been nominated a sub-contractor to LTA.     He is not aware of the correspondence of 8 December 1998 addressed by first defendant, through the person of Twemlow, to DTL Shipping advising of verbal instruction by DTL Shipping to accept the tender of Gransteel; advising of the fact that the ultimate client had not as yet been established and that Gransteel required a payment guarantee.    Furthermore he is not aware of correspondence addressed to various stakeholders by a firm Worthington-Smith and Brouwer advising of an instruction to proceed and purportedly acting on behalf of DTL Shipping and of the fact that DTL Shipping would not be a final contracting party.   DTL Shipping’s financial exposure was never communicated to Gransteel.

[19]	Ellis had in the course of the project submitted two payment certificates both on the instruction of Twemlow of the first defendant.   The first such certificate, dated 14 December 1998, was submitted to DTL Shipping, whilst the second certificate which was submitted to LTA on 21 December 1998 was backdated to 14 December 1998 on the instruction of Twemlow of the first defendant.    The first site meeting he attended was on 13 January 1999.  At that meeting, the second defendant, amongst other things, recorded that progress since the work started on site had been absolutely fantastic.

[20]	Per a letter dated 26 January 1999 from LTA (Eastern Cape) and addressed to Gransteel, the latter was advised to cease operations on site until further notice.   All work on site was to be suspended with effect from 16h00 on Tuesday, 26 January 1999.   The second paragraph of this letter, addressed to Gransteel as it was, and marked for the attention of Dr Twemlow reads:
“As our Nominated Sub-Contractor you are hereby informed that you are to cease all operations on site until advised by us.”

[21]	At no stage prior to 26 January 1999 did Gransteel sign a sub-contract agreement with LTA.   The only contract he recalls having been called upon to sign is the one addressed to Gransteel under cover of a letter dated 1 February 1999.   Per a letter dated 9 March 1999 Gransteel was informed by LTA, per Eric Oswald, and after the second payment certificate had been submitted, that there was no likelihood of Gransteel and other contractors being paid any money until the middle of April 1999.   The letter goes on to say “… suing DTL Shipping is unlikely to produce the result we require since I believe it will only force them to liquidation.”
Gransteel was never paid until it was forced to go into liquidation during April 2001.
 
[22]	The following emerged in Ellis’ evidence under cross-examination: that there is no question of Gransteel having deliberately been misled by the defendants; that there were no discussion with either Twemlow or the second defendant regarding financial arrangements being in place during the period October, November and December 1998; at no stage did Gransteel require payment guarantee from DTL Shipping nor did Gransteel instruct any of the two defendants to do so; the concern about payment of the outstanding amount due in respect of work done, arose only after he had attended the first site meeting on 13 January 1999; Gransteel was not competing against other steel contractors when called upon to submit a quotation.

SUMMARY OF THE SALIENT FEATURES OF PLAINTIFF’S EVIDENCE
[23]	From the evidence of both McCoy and Ellis it appears that the second defendant initiated the conclusion of the structural steelwork contract with Gransteel; that the proposed fruit terminal project was urgent and needed to be completed during April and thus in time before the following citrus season; at all material times preceding the conclusion of the structural steelwork contract Ellis had understood the second defendant to have acted for a consortium of which Spoornet was a partner; Ellis did not, prior to the submissions of the required quotation, respond to either a call for a proposal to do structural steelwork, a call for expression of interest or a call to submit a tender; Gransteel was in fact specifically invited to submit a quotation; it did not matter to Gransteel who the client was as both McCoy and Ellis derived comfort in having dealt with both first and second defendants in the past and with whom they had had a smooth, longstanding business relationship; in their previous business relationship with first and second defendants there never was a need or an occasion never arose for Gransteel to identify and investigate the financial capacity of the ultimate client.

PLAINTIFFS’ CAUSE OF ACTION
[24]	I have already pointed out in paragraph [8] of this judgment that plaintiffs’ claim against the defendants is for compensation for loss suffered as a result of the alleged fraudulent or negligent misrepresentation made by both the defendants in failing to apprise Gransteel of the true state of affairs relating to the proposed project at the time the structural steelwork contract was concluded.

[25]	The representations referred to are pleaded in paragraph 19 of plaintiffs’ particular of claim which reads as follows:
	“19.	In concluding the structural steelwork contract, and in thereafter instructing Gransteel to proceed with the structural steelworks, the defendants represented that:
		19.1	the first defendant was acting on behalf of the developer;
		19.2	the joint venture had been established;
		19.3	the necessary financial arrangements were in place to enable the fruit terminal project to proceed. (“the representations”).

[26]	In paragraph 20 of its particulars of claim the plaintiffs go on to plead that the representations referred to were false in that the developer did not exist; that the joint venture was not established nor were the necessary financial arrangements in place to enable the fruit terminal project to proceed.   The plaintiffs then go on further to plead that the defendants had a legal duty to advise Gransteel that no developer existed; that no joint venture had been established and that no financial arrangements were in place to enable the fruit terminal project to proceed.

[27]	I have further already pointed out in paragraph [11] of this judgment that after the defendants unsuccessfully applied for absolution from the instance at the close of the plaintiffs’ case, the defendants elected not to testify and closed their case without tendering any form of evidence.
It is thus on the body of evidence tendered on behalf of plaintiffs that I have to determine the merits of the plaintiffs’ claim.
 
PURE ECONOMIC LOSS
[28]	The loss allegedly suffered by Gransteel does not arise out of physical damage to property.   What the plaintiffs allege in their particulars of claim is that the loss allegedly suffered by Gransteel arises out of breach of a legal duty by the defendants to apprise Gransteel of the true state of affairs during the course of events leading to the conclusion of the structural steelwork contract and during the subsistence of the since concluded structural steelwork contract.   Thus, plaintiffs’ claim is based on aquilian liability for pure economic loss caused by breach of a legal duty allegedly owed to Gransteel by the defendants to apprise Gransteel of the true state of affairs.

[29]	A delictual action for pure economic loss would arise if, in the words of Corbett CJ in Bayer South Africa (Pty) Ltd v Frost 1991(4) SA 559(A) at 568B:
“(i) the defendant, or someone for whom the defendant is vicariously liable, made a misstatement to plaintiff; (ii) that in making this misstatement the person concerned acted (a) negligently and (b) unlawfully; (iii) that the misstatement  caused the plaintiff to sustain loss and  (iv) that the damages claimed represent proper compensation for such loss.”

[30]	In a case of liability for pure economic loss, wrongfulness is determined not by a reference to the wrongful infringement of a subjective right, but rather by a determination whether there is a legal duty to prevent loss.    (Neethling, Potgieter, Visser: Law of Delict 4th Edition p56), To found liability for pure economic loss, the obvious qualification is that the wrongdoers’ conduct must comply with the general requirements for delictual liability.
Thus the first issue to determine is whether, as a matter of substantive law, the defendants owed Gransteel a legal duty to apprise Gransteel  of the true state of affairs and if the defendants do, whether the defendants acted in breach of such a legal duty resulting in Gransteel suffering financial loss.   In the event the defendants owe Gransteel such duty of care, plaintiffs are further required to show that the loss suffered was reasonably foreseeable and that the defendants failed to prevent the loss occurring. (See Bowley Steels (Pty) Ltd v Dalian Engineering (Pty) Ltd 1996(2) SA 393 (T) at 398 D-H)

[31]	In determining the wrongfulness of the defendants’ conduct arising from failure to apprise Gransteel of the true state of affairs, the criterion of reasonableness should be employed to determine the existence or otherwise of such a legal duty.   Whether or not such a duty exists depends on policy considerations in the form of public interest or the legal convictions of the community.

DID THE DEFENDANTS OWE GRANSTEEL A LEGAL DUTY ?
[32]	   I have already pointed out in the previous paragraph that whether or not the defendants owed Gransteel a duty of care, depends on the convictions of the community.   Thus, the question to be determined is whether the defendants’ conduct complained of was reasonable according to the legal convictions of the community.  (Regal v African Superstate (Pty) Ltd 1963(1)SA 102 (A) at 106)

[33]	   Elloff JP in the Bowley Steels case supra, in determining how the attitude of the community is to be gauged, cites the following remarks by Corbett CJ, derived from his Oliver Schreiner Memorial Lecture (1987) 104 SALJ at 67-8:
“It is these values and norms that the Judge must apply in making his decision.   And in doing so he must become ‘the living voice of the people’; he must ‘know us better than ourselves’; he must interpret society to itself.
In this process the Judge would no doubt be influenced by concepts of natural law, by international law norms and by the way in which the particular problem is handled in other comparable systems of jurisprudence.  He would draw upon his knowledge and experience gained as an educated, responsible and enlightened member of society, upon the contact with and insight into his fellow humans which his professional career has given him; and he would draw upon his continuing perceptions of the attitudes of the community around him.”

[34]	   Booysen J, in Coronation Brick v Strachan Construction 1982(4) SA 371(D) at 384 B-E appears to equate the perceptions of the community with the view likely to be taken by the reasonable man.   He ventures a summary of the considerations to be taken into account in deciding whether the defendant owed the plaintiff a duty, in the face of foreseeable loss, to take care:
“It would seem therefore that in determining in a given case whether the defendant’s conduct which resulted in foreseen or foreseeable economic loss was unlawful or wrongful the question is whether it would in all the circumstances be reasonable to recognise that defendant owed the plaintiff a legal duty or duty of care or, to put it differently, whether the reasonable man in defendant’s position would in all the circumstances have recognised that he owed the plaintiff a duty of care.   Although it is not possible to lay down hard and fast rules, certain guidelines have been laid down by our Courts.   A defendant’s conduct, including an omission, is regarded as unlawful when the circumstances of the case are of such a nature that it not only incites moral indignation but also that the legal convictions of the community demand that it ought to be regarded as unlawful and that the damage suffered by the plaintiff ought to be made good by the defendant.”

With this approach in mind and based on the principles I have referred to in the preceding paragraphs, I turn now to determine, on basis of evidence on record, if the plaintiffs have established that there was a legal duty on the defendants to apprise Gransteel of the true state of affairs as to whether the joint venture had been established and as well as to whether the necessary financial arrangements were in place to enable the fruit terminal project to proceed.
Perhaps the starting point in the determination of this question would be to examine the parties’ prior business relationship prior to the conclusion of the structural steelwork contract.

THE PARTIES’ PROIR BUSINESS RELATIONSHIP 
[35]	According to the evidence of McCoy and Ellis, it is clear that Gransteel, first and second defendants had had a smooth and longstanding business relationship.    They had previously been involved in several big projects one of which, as has already been mentioned elsewhere in this judgment, was the Kramco Appel Co-operative in Elgin.   McCoy also testified how he, in his career, had come to know the second defendant; how he trusted him; how he had absolute faith in him; how they had had several business relationships in the past where an own risk element was not a factor.   So also was the first defendant known to both McCoy and Ellis.   They had had previous business relationships with the first defendant through the person of Twemlow.   They had had a good co-operation in the past.   They had enjoyed a long history of fruitful collaboration.   In their previous dealing Gransteel never had to deal or never needed to have a direct contact with the ultimate client.   It is my view that based on this prior business relationship there was a duty on both the first and second defendant to disclose to Gransteel every material fact pertaining to the proposed fruit terminal project and, in particular, in the instance of this matter, particulars relating to the ultimate client and whether the necessary financial arrangements were in place to enable the fruit terminal project to proceed.

DID THE DEFENDANTS DISPLAY THE REQUIRED DUTY OF CARE
[36]	One thing which is clear on basis of evidence on record is that, as regards the fruit terminal project, it was envisaged that a joint venture would be established and that this joint venture or some other similar entity would be the ultimate client.   As regards the envisaged joint venture, LTA, DTL Shipping, Spoornet, a black economic empowerment component would be partners in the proposed joint venture. The evidence has furthermore shown that at the time the structural steelwork contract was concluded with Gransteel the envisaged joint venture had not as yet been established, nor were the necessary financial arrangement in place to enable the fruit terminal project to proceed.   These are material facts which ought to have been disclosed to Gransteel, if not prior to the conclusion of the structural steelwork contract, shortly afterwards in order to afford Gransteel an opportunity to reconsider its position in the light of such disclosure.   The duty involves the disclosure of all material facts even if one does not appreciate the materiality of such facts.   There is no evidence to suggest that these facts were disclosed to Gransteel so that, to this extent, both first and second defendant breached a legal duty owed to Gransteel.   This finding is in line with several decisions where it was held that in instances where there was a prior contractual relationship between the parties, there is a duty between the parties themselves to furnish the correct information concerning a matter arising from the contract and relating to its implementation.    (See Bayer South Africa (Pty) Ltd v Frost 1991(4) SA 559 @ 575A-C; Mukheiber v Raath and Another 1999(3) SA 1065 @ 1076 E-I and Neethling, Potgieter, Visser supra p306).   

[37]	There is no doubt in my mind that at the time the structural steelwork contract was concluded with Gransteel and at the time Gransteel was instructed to proceed with the structural steelwork, the envisaged joint venture had not as yet been established and, accordingly, the necessary financial arrangements were not in place to enable the fruit terminal project to proceed.   Both the first and second defendant were aware of these facts and omitted to disclose these to Gransteel in circumstances where the legal convictions of the community would have demanded disclosure of such facts.   Failure to do so constitutes a breach of a legal duty owed by both the first and second defendants to Gransteel.   The omission by the defendants to do the necessary disclosure constitutes conduct which is both wrongful and unlawful.   Had the true state of affairs been disclosed to Gransteel, it probably would have made its own election whether to proceed with the contract under such circumstances.

DOES FAILURE TO DISCLOSE CONSTITUTE NEGLIGENCE ? 
[38]	In the two previous paragraphs I made a finding that both first and second defendants owed Gransteel a duty of care and that failure to do so constitutes wrongful conduct.   This duty of care involved an obligation to disclose to Gransteel the true state of affairs relating to the ultimate client and, in particular, whether the necessary financial arrangements were in place to enable the envisaged fruit terminal project to proceed.   I have further determined that failure to make the necessary disclosure constitutes wrongful conduct.   However, the mere fact that the defendants acted wrongfully does not in itself render them liable to Gransteel.   In order to establish liability on the part of the defendants, it must further be shown that their conduct, in failing to inform Gransteel of the true state of affairs, was negligent.

[39]	In our legal system it is trite that the standard of conduct expected from all members of society is that of a reasonable person in the position of the defendant.   Any conduct which falls short of this standard constitutes negligence.
 For purposes of liability culpa arises if:
a)	a reasonable person in the position of the defendant:
	(i)	would foresee the reasonable possibility of his or her conduct injuring or causing harm to another in his or her person or property and, in the process, causing him patrimonial loss; and
	(ii)	would take reasonable steps to guard against such occurrence; and
(b)	the defendant failed to take such steps.   (Neethling, Potgieter, Visser supra at p129; Kruger v Coetzee 1966(2) SA 428(A) @ 430 and Mukheiber v Raath & Another supra @ 1077 E-F)

[40]	At the cost of repeating myself it needs to be re-iterated that Gransteel had a long and smooth business relationship with both first and second defendant.    The fact that Gransteel was invited to submit a quotation in respect of the proposed fruit terminal project without tender, is a clear indication of such longstanding business relationship.   Ellis’ evidence is that he was contacted by the second defendant when the latter informed him of the proposed fruit terminal project to be developed in the Port Elizabeth harbour.  Ellis understood the second defendant to have said he was acting on behalf of a consortium of which Spoornet was one of the partners.   Second defendant also mentioned to Ellis that, because of the size of the project, he had asked the first defendant to manage the project.   Ellis was to deal with Twemlow of the first defendant to whom he had to submit the required quotation which, after numerous communications with Twemlow, was subsequently approved.   After approval of Gransteel’s quotation, the latter was instructed to proceed whereafter the required material was procured.  There was no discussion as to who would be responsible for the costs to be incurred, other than a belief on the part of Ellis that some consortium would be liable for the services rendered and the material supplied.   Payment was not discussed.

[41]	In the meanwhile, first and second defendants were aware, at the time of the conclusion of the agreement and the giving of instruction, that the ultimate client, either was not in place or was in the process of formation and, in view thereof, no financial arrangements were in place to enable the fruit terminal project to proceed.   First and second defendant would have hoped that the ultimate client, hopefully with funds injected by other partners to the consortium, would have been the source of funds from which Gransteel’s claim in respect of work done and the material supplied would be paid.   That there were concerns on the part of first and the second defendant about the implementation of the project and which concerns they did not share with Gransteel, is demonstrated in the paragraphs which follow.

[42]	On 25 December 1998, the second defendant composed a letter to DTL Shipping and Customs, one of the partners in the proposed joint venture.   This letter, in respect of which there is no evidence to suggest it was copied to Gransteel, in part reads as follows:
“I am finding it increasingly difficult to keep people motivated and thus help you with this project.
I have trusted you and it is on this basis that I have got together the only team I feel can achieve what you want in Port Elizabeth by somewhere in April, i.e., in time for the Citrus Season and possibly the tail end of the Deciduous Season.
You will know that expenses are being incurred with DTL Shipping standing security for these on behalf of the ultimate client.”
The letter concludes:
“We now need some definite decisions.   I have tried to come and talk things over with you but have so far not had any luck and hence this fax to you.”

[43]	Furthermore on 8 December 1998 the first defendant wrote the following letter to DTL Shipping without the knowledge of Gransteel:
“We have negotiated the structural steel and cladding with Gransteel for the supply, delivery and erection of the structural steel and cladding amounting to R 4,443,138.89 excluding VAT and confirm your verbal instruction to accept this tender on your behalf.   As the ultimate client company is not in place at present, Gransteel require payment guarantee for R1,4million being their anticipated expenditure during December 1998.”
According to the evidence of McCoy and Ellis, no such instruction was given to the first defendant to address such a letter to Gransteel nor was such a letter copied to Gransteel.   The impression here is clearly created that first and second defendant were aware of the financial concerns relating to the proposed fruit terminal project yet these concerns were not communicated to Gransteel.   The defendants elected not to testify and there is therefore no evidence by the defendants to refute this assertion made on behalf of Gransteel.   Both Ellis and McCoy, stated in their evidence that Gransteel would not have proceeded with the contract had they been aware that the ultimate client was not established and no financial arrangements were in place to enable the project to proceed.

[44]	By instructing Gransteel to proceed with the contract without the ultimate client being in place and with a clear knowledge that financial arrangements were not in place to enable the fruit terminal project to proceed, both first and second defendants ought to have foreseen the reasonable possibility of their conduct causing Gransteel to suffer financial loss and which eventuality they were in a position to guard against.  Failure by both first and second to guard against this eventuality constitutes negligence on their part.   I have already determined that this conduct is wrongful.   However, to found liability the first and second defendants’ conduct has to comply with the other elements of delictual liability.   I now turn to consider the remaining elements of delictual liability to determine if, on basis of evidence tendered, the plaintiffs have proved the delictual claim instituted against the defendants.
 
CAUSATION
[45]	Gransteel’s conduct should be judged within the context of the pre-existing business relationship with first and second defendants.   The evidence on record suggests that prior to the fruit terminal project, Gransteel and the defendants had had a longstanding business relationship and had on a number of occasions successfully embarked on numerous sizeable projects.   Both Ellis and McCoy testified that they had no reason to disbelieve the first and second defendants about the viability of the proposed project.   According to both Ellis and McCoy, that they were further instructions to proceed after the stoppage instruction, strengthened their belief that everything was in place.   We have, however, seen on the basis of the body of evidence that this in fact was not so.   This conduct on the part of both defendants constitutes representation to which Gransteel acted upon to its detriment.

[46]	Because of the aforementioned representation Gransteel was induced to conclude the structural steelwork contract.   Had it not been the representation that the ultimate client was in existence and that financial arrangements were place to enable the fruit terminal project to proceed, Gransteel would not have proceeded with the contract and incurred the expenses which resulted in its financial loss.   It is my view therefore that the loss suffered by Gransteel is causally linked to the representation induced to Gransteel that all was in place for the fruit terminal project to proceed.

DAMAGE
[47]	The purposes of awarding damages for patrimonial loss, which would include pure economic loss in the instance of this matter is, as far as is reasonably possible, to place the party which has suffered loss in the financial position it would have been in had the cause of complaint not have been committed.  Part of the evidence by Ellis attempted to cover this aspect of the plaintiffs’ claim.    In his evidence Ellis referred to a number of invoices in an attempt to substantiate the exact amount of loss sustained by Gransteel.   I had the distinct impression that Ellis referred to all available evidence in an attempt to substantiate the amount claimed and to provide accurate assessment thereof.   Indeed, the evidence by Ellis as regards the loss suffered by Gransteel, was not seriously challenged under cross-examination.   When the matter was argued it was pointed out that plaintiffs do not persist with their claim in regard to cladding, the latter being a claim relating to services rendered by another contractor.   Reference was made in argument to the revised annexure “PPC6” annexed to plaintiff’s heads of argument.   In the revised annexure “PPC6” the amount claimed is calculated at                 R 1,616,366.00.   “PPC6” clearly sets out how the revised amount claimed is arrived at.   All claim items set out in the relevant annexure are sufficiently covered in evidence by Ellis and there is thus no reason not to accept the revised amount of R 1,616,366.00 as accurately reflecting the loss suffered by Gransteel.

DEFENDANTS’ ATTACK DIRECTED ON INSUFFICIENCY OF EVIDENCE
[48]	I have already pointed out elsewhere in this judgment that after an unsuccessful application for absolution from the instance the defendants chose to close their case and did not tender any viva voce evidence to refute evidence tendered on behalf of plaintiffs.   The defendants were content, in argument, to attack insufficiency of evidence or lack thereof, to prove some of the material averments contained in paragraph 9 read with paragraphs 19, 20, 21 and 23 of the plaintiffs’ particulars of claim.  

[49]	As to the averments contained in paragraph 19 of the plaintiffs’ particulars of claim, the defendants contend in their submission and in argument that neither the evidence of McCoy nor that of Ellis substantiates the averments that in concluding the structural steelwork contract and the subsequent instruction to proceed with the contract the defendants represented to Gransteel that the first defendant was acting on behalf of the developer.   The evidence by both McCoy and Ellis is that when the second defendant approached Ellis in connection with the fruit terminal project, he indicated that he was acting on behalf of a consortium of which Spoornet was a constituent part.   The representation thus made to Ellis and, ultimately to McCoy, was that the consortium, of which Spoornet was a constituent part, was to be a developer.   Ellis had before then never heard of the company DTL Shipping nor was he informed that DTL Shipping was either part of the consortium or the ultimate client and developer.   The structural steelwork contract was concluded with Gransteel through the person of Ellis whilst the first and second defendants represented the developer.   It was never put to either Ellis or McCoy under cross-examination that DTL Shipping was the ultimate client or that a joint venture in the process of formation would be the ultimate client.

[50]	The further averments which the defendants claim in their submissions are not substantiated by the evidence tendered are those relating to the representation that the joint venture had been established and that the necessary financial arrangements to enable the fruit terminal to proceed were in place.

[51]	The evidence by Ellis that when approached by the second defendant, the latter indicated to him that he was acting on behalf of a consortium was not disputed or challenged under cross-examination.   Furthermore, there is no evidence on record to suggest that it was communicated to Gransteel or that Gransteel was informed that the ultimate client was in the process of formation.   Concerns about the establishment of the joint venture, and thus the ultimate client and the necessary financial arrangements was between DTL Shipping, LTA, first and the second defendants.   There is no evidence on record to suggest that these concerns were shared with or were communicated to Gransteel.   A letter by second defendant addressed to DTL Shipping dated 25 November 1998 referred to in paragraph [37] and a further letter by first defendant addressed to DTL Shipping dated 8 December 1998, both of which were not copied to Gransteel, testify to this fact.    There is no evidence of communication to Gransteel to indicate that Fruit Terminal Port Elizabeth (Pty) Ltd was to be the ultimate client either.   A further letter by the first defendant to DTL Shipping dated 5 January 1999 advising of contracts to be drawn up between various parties and Fruit Terminal Port Elizabeth (Pty) Ltd was not copied to Gransteel.   Similarly there is no indication on evidence on record if Gransteel was apprised of these developments.   A letter by the first defendant addressed to DTL Shipping dated 12 January 1999 relating to concerns expressed states “Peter and I tried to convey to you last night, the situation is now critical and puts the whole project in jeopardy.   Should payment to LTA and ourselves not be made by tomorrow, we will be unable to proceed further without explaining the position clearly to the contracting parties who, under the present circumstances, are unlikely to be willing to proceed with work.”
The letter concludes: “I am sure you understand the difficulty that we are now in and will hope that the problem is resolved today.”
This letter also was not communicated to Gransteel.

[52]	Finally, on the matter of the establishment or otherwise of the joint venture, on 2 January 1999, Michael Pickstone Taylor composed a letter which was sent per telefax transmission to some of the stakeholders to the project in which he, amongst other things, explains that matters relating to finances have taken longer than anticipated and that he fully understands the difficulty of the position they face.   The letter was copied to Twemlow of the first defendant and to the second defendant.   There is no evidence on record to suggest that this letter or contents thereof were communicated to Gransteel.  The correspondence which exchanged hands between the first and second defendants on the one hand and DTL Shipping on the other hand, clearly indicates that no joint venture was established and that no financial arrangements were in place to enable the terminal project to proceed.   This communication was limited to first and second defendants and other stakeholders excluding Gransteel.  Failure to communicate this information to Gransteel, thus disclosing that the joint venture had not been established or that the necessary financial arrangements were in place to enable the terminal project to proceed is nothing short of misrepresentation justifying a cause of action.

[53]	Based on the evidence referred to in the two preceding paragraphs, it is evident that at the time Gransteel was instructed to proceed with the contract, not only had the proposed joint venture not been established, but also no financial arrangements were in place to enable the fruit terminal project to proceed.   When the second defendant consulted Ellis and subsequently gave Gransteel instructions to proceed, he indicated that he acted on behalf of a consortium, of which Spoornet was a partner, which would be responsible for the development of the project.   It is my view that the plaintiffs have made out a case that the defendants did induce a belief on Gransteel, through the person of Ellis, that at the time the structural steelwork contract was concluded, the defendants were acting on behalf of a developer; that a joint venture had been established and that the necessary financial arrangements were in place to enable the fruit terminal project to proceed.

CONTRIBUTORY NEGLIGENCE
[54]	Gransteel concluded the structural steelwork agreement at the invitation of the second defendant who, according to the uncontested evidence of Ellis, created an impression that he acted on behalf of a consortium.   The body of evidence does show that at the time Gransteel was invited to submit a quotation, the proposed joint venture, which it was anticipated would be the ultimate client, had not as yet been established.   It has further been shown on basis of evidence, that the proposed joint venture was either in the process of formation or not yet established. Gransteel did not offer to do the structural steelworks either in response to a call for an expression of interest or, in response to an invitation to tender.   In either event, whether in response to a call for an expression of interest or in response to an invitation to tender, the identity of the other contracting party would in all probability be ascertainable.   But the circumstances leading to Gransteel’s conclusion of the structural steelwork contract, in the circumstances of this matter, are different.   In the instance of this matter, Gransteel was invited to participate in a project of substantial magnitude in circumstances where there was no general call for tenders or expression of interest.   In concluding a contract under such circumstances Gransteel, in my view, ought to have been more vigilant as regards the identity of the other party with whom it was entering into a contract.   

[55]	Gransteel could not completely allow itself to be lulled into a false sense of security because of prior conduct of the other parties involved in the project and because of the involvement of other entities known to it in the project.   This is a matter in which Gransteel ought to have exercised caution as regards the party with which it was entering into a contractual relationship.   It was not reasonable of Gransteel, in circumstances where it was invited to participate in a project of substantial magnitude, virtually with no competitor, to have deliberately shut its eyes, refrained from making enquiries in circumstances where it would have been reasonable to do so.   That Gransteel failed to do so constitutes negligence.   More so, the fact that after the initial instruction to commence the structural works, Gransteel was instructed to stop and later instructed to proceed, ought to have excited suspicion on the part of Gransteel which would have warranted a diligent enquiry.   Gransteel, in my view, was equally to blame for the economic loss it suffered.

ABSOLUTION FROM THE INSTANCE
[56]	At the close of plaintiffs’ case, the defendant applied for absolution from the instance which, after hearing argument by the parties, I refused.   The defendant argued that the defendant be absolved from the instance on the basis that the evidence tendered on behalf of plaintiffs did not sustain the averments contained in paragraph 9 and 19 of plaintiffs’ particulars of claim and that, in view thereof, there was no case for the defendant to meet.   My view at the time was that there was sufficient evidence tendered on basis of which a reasonable person might find for the plaintiffs, hence the refusal of absolution from the instance.

SUMMARY OF FINDINGS
[57]	In this judgment I have thus found that first and second defendant owed Gransteel a duty to disclose which inevitably would involve the obligation to make disclosures in a pre-contractual setting; that first and the second defendant failed to discharge the duty of care owed to Gransteel; that failure to so disclose constitutes wrongful conduct; that Gransteel suffered loss in circumstances which were foreseeable and which loss first and second defendant could guard against.   I have further found that, on basis of evidence by Ellis, that the loss sustained by Gransteel was sufficiently quantified and that annexure “PPC6” reflects an accurate assessment of loss sustain by Gransteel and which loss, both the defendants are delictually liable to compensate Gransteel.
Furthermore, I have found that Gransteel, in not making a diligent enquiry in circumstance where it would have been reasonable to do so, is equally to blame for the loss it has suffered.   In view of this, whatever loss Gransteel suffered ought to be equally shared with first and second defendant.

CONCLUSION
[58]	It therefore follows, in my view, that the plaintiffs have succeeded to prove, on the balance of probabilities, that the loss Gransteel incurred is attributable to the first and second defendants’ and that the first and second defendants are liable to compensate Gransteel in the amount claimed.
However, in view of Gransteel’s equal share of blameworthiness, whatever amount due to Gransteel by way of compensation, ought to be shared equally between Gransteel and first and second defendants.   The amount of loss proved is in the amount of R 1,616,366.00.   Thus the amount due to Gransteel by way of compensation should be calculated at half of Gransteel’s proved loss, being an amount of           R 808,183.00.

ORDER
[58]	Taking all the circumstances of the matter into account and particularly in the light of the totality of evidence, it is hereby ordered as follows:
[58.1]	   First and second defendant are hereby ordered to compensate  plaintiffs, in their capacities as liquidators of Gransteel (Pty) Ltd (in liquidation) in amount of R 808,183.00, jointly and severally, the one paying the other to be absolved.
[58.2]	   Interest thereon at the rate of 15.5% per annum from date of judgment.
[58.3]	   The defendants are further hereby ordered to pay plaintiffs’ costs of suit, duly taxed or as agreed.

………………………..
N J Yekiso, J